The Re-Solidification of FERC’s Driftwood Compromise

In July, FERC’s sunshine notice included three LNG export-related projects, four local distribution company (“LDC”)-related projects, and a storage project, each of which seemed like they would be considered under the framework FERC had been using to address downstream GHG emissions and the SCC-GHG in certificate proceedings since April, i.e., the Driftwood Compromise. On the morning of the meeting, FERC inexplicably struck six of the matters from the agenda, including all three LNG export-related projects and three of the LDC-related projects. The two orders that were issued relied upon different applications of the Driftwood Compromise, with different commissioners providing the third vote, and included multiple separate commissioner statements. Nothing in the separate statements provided insight into why the items struck from the agenda could not have been considered and approved using one or the other applications of the Driftwood Compromise applied that day. Accordingly, the Commission’s actions cast serious doubt on the future viability of the Driftwood Compromise to address GHGs in the applications struck from agenda and other NGA projects that were ripe for Commission action.

Following two months of inaction and speculation, the Commission seemed to return to business as usual. The September orders moved the Commission past differing applications of the Driftwood Compromise set out in the July orders, as Commissioner Danly provided the concurring vote on each September NGA order. While the underlying reasons for striking the six matters in July remains unclear, the September orders show that the Commission now has a path forward on GHGs for all of the types of projects currently pending before the Commission, including those delivering to LDCs, downstream pipeline interconnections, LNG exporters, and power generators. Under the framework that emerged in the September orders approving projects, orders can include the Driftwood Compromise and find downstream GHG emissions reasonably foreseeable for power generators and LDCs, with Commissioner Danly concurring in part and dissenting in part related to downstream LDC emissions. Still, sensitivities abound related to the Commission’s analysis of GHGs, and future applicants must be careful to plan accordingly in the preparation of their certificate applications.

The Driftwood Compromise

The Driftwood Compromise is an acknowledgement by Chairman Phillips and Commissioners Danly and Christie that there are no currently acceptable methods for determining whether significant environmental impacts would result from specific amounts of GHG emissions, including from the monetary values produced by the SCC-GHG and, accordingly, those monetary values are presented for “informational purposes only.” This consensus first appeared in the April 2023 certificate order for Driftwood Pipeline LLC’s Line 200 and Line 300 Project.² Similar language then reappeared in the NGA Section 3 and Section 7 orders issued in May and June,³ each of which were approved with Chairman Phillips, Commissioner Christie, and Commissioner Danly voting in favor of the certificate.

Commissioner Clements dissented, either in full or in part, in each of the proceedings that included the Driftwood Compromise language, repeatedly calling on FERC to make a significance decision, based in part on FERC Staff’s calculation of the SCC-GHGs. Although Commissioner Clements has voted against 10 orders including the Driftwood Compromise through September, she stated in her separate statement in seven orders (all except LNG-related remand/rehearing orders) that she concurred with the outcome of the orders, i.e., authorizing the underlying project.

Application of Driftwood Compromise at FERC’s July Open Meeting

The first certificate order to be released following the July Open Meeting was for Boardwalk Storage Company LLC’s Compression Replacement Project.⁴ Boardwalk was the initial indication that there was a shift in the Commission’s application of the Driftwood Compromise. While the order included and applied the same Driftwood Compromise as earlier orders, Commissioner Danly was compelled to issue a separate statement raising issues related, in part, to the SCC-GHG. This was the first sign that the Driftwood Compromise was in doubt.

Next, the certificate for Transco’s Southside Reliability Enhancement Project was issued.⁵ Here, the Driftwood Compromise needed to be moved to a concurring opinion to allow Commissioner Clements to join the majority. Commission Danly was compelled to dissent from the order based on a number of factors, but largely because of the order’s characterization of the downstream emissions associated with the LDC offtakers as “reasonably foreseeable.” Commissioner Danly had not taken issue with the characterization of downstream emissions by a generator-shipper as “reasonably foreseeable” in Driftwood, but no order issued subsequent to Driftwood until Transco had found downstream emissions reasonably foreseeable as those orders involved projects delivering for LNG export or to pipeline interconnections for further transportation downstream.

Following Commissioner Danly’s separate statement in Boardwalk and, more significantly, the removal of the Driftwood Compromise from Transco, onlookers grew concerned that the Commission lacked a consensus on a framework to consider downstream GHGs and the SCC-GHG across project types. Transco appeared like it could be a potential outlier because it dealt exclusively with GHG emissions associated with LDC customers’ combustion. However, the seeming consistency of the GHGs associated with the LNG-related projects struck from the agenda with the storage project approved in Boardwalk combined with Chairman Phillips’ and Commissioner Christie’s statements directed at Commissioner Danly following the Open Meeting led onlookers to grow increasingly concerned that the different types projects before FERC no longer had Commissioner Danly’s key third vote. And, further, that there was no consistent, workable framework for considering GHGs.

Application of the Driftwood Compromise at FERC’s September Open Meeting

The September Open Meeting was a marked shift for project developers. In the four orders resulting from the September Open Meeting, Commission Danly showed a willingness to reconsider his earlier position and issue separate statements that concurred in the issuance of certificates while leaving specific issues noted in the same statement as partial dissents. The three LNG-related orders were each approved with the Driftwood Compromise language and a determination that downstream emissions were not reasonably foreseeable.⁶

Commissioner Danly issued separate statements in each. He specifically concurred with the issuance of the certificate and the Driftwood Compromise language but dissented over other issues, some of which he raised in his Boardwalk statement.⁷ Commissioner Clements issued a separate statement in each order, noting that she concurred with the result, but that she dissented regarding the Driftwood Compromise language.⁸

Northern Natural’s Northern Lights project was the fourth certificate to be voted out at the September Open Meeting, but also the most significant.⁹ Like the LNG-related orders, the Northern Natural order included the Driftwood Compromise.¹⁰ However, downstream emissions associated with the LDCs’ customers’ combustion of the transported natural gas were determined to be reasonably foreseeable.¹¹ This same language had been included in the Transco order and prompted Commissioner Danly to dissent. Yet, in Northern Natural, Commissioner Danly issued a separate statement partially concurring and partially dissenting. Specifically, he concurred with the issuance of the order and dissented as to the characterization of the downstream emissions associated with the LDC offtakers.¹² Commissioner Danly raised multiple points regarding the finding of foreseeability of downstream LDC emissions, including that the Commission has no legal authority to do so and that it was inappropriate to calculate such emissions assuming a 100% utilization or “full burn.”¹³ Commissioner Clements filed a dissent in part similar to what she filed in the LNG-related orders.¹⁴

Many FERC observers and the press have asked what drove Commissioner Danly to seemingly change direction and concur in the issuance of the certificate in Northern Natural when he dissented in Transco, seemingly over the same issue. Perhaps it stemmed from the widespread belief that Commissioner Danly was the one who had caused the orders to be struck from the July meeting and delay those projects from moving forward. There was respected reporting at that time that would support this thesis.¹⁵ Commissioner Danly undoubtedly was aware of this reporting and criticism. But unless he speaks directly to the issue, which is unlikely, how one reconciles his positions in Northern Natural with the Transco is not as important as the fact that he appears to be re-solidifying the three votes in favor of projects delivering to LDCs under the Driftwood Compromise framework. This leaves it unlikely that Chairman Phillips and Commissioner Christie will need to take a similar approach to Transco to garner Commission Clements’ vote in the future. WBI Energy Transmission Inc.’s Wahpeton Expansion Project¹⁶ and Gas Transmission Northwest LLC’s GTN Express Project,¹⁷ which were pulled in July, were not on the agenda for the September Open Meeting. Following the July Open Meeting, it seemed like these projects were struck for GHG-related reasons. However, in light of the September orders, it is likely that there are non-GHG-related issues where the Commissioners’ currently disagree. The timing for these projects remains uncertain.

The September open meeting did leave open the status of two LNG related agenda items on rehearing that were struck, again, just prior to its start. The Commission committed to issuing notational orders in September to avoid Commission Danly’s proposed second open meeting that month. The Commission has not yet acted. When issued, these rehearing orders will likely provide further insight into the Commission’s consideration of GHG emissions and the SCC-GHG.

Where We Stand Moving Forward

As it concerns the Commission’s treatment of GHG emissions, we see a path to certificate orders for the types of projects currently before the Commission, including those serving downstream pipeline interconnections, LNG export markets, LDCs, and power generators. Chairman Phillips, Commissioner Christie, and Commissioner Danly each appear to be comfortable using the Driftwood Compromise to address GHG significance across the project types.¹⁸ The key issue is the reasonable foreseeability of downstream GHG emissions, but the Commissioners appear to have reached a workable position that will enable action on projects, relative to GHG issues, moving forward.

There is now a consensus amongst Chairman Phillips, Commissioner Christie, and Commissioner Danly that downstream emissions are not reasonably foreseeable for storage projects,¹⁹ LNG export projects,²⁰ or downstream pipeline interconnection projects.²¹ This could help Trailblazer Pipeline Company, LLC and Rockies Express Pipeline, LLC’s Trailblazer Conversion Project²² and Transco’s Texas to Louisiana Energy Pathway Project²³ reach orders soon because the first does not involve an increase in downstream combustion and the second does not include reasonably foreseeable end use. Storage and LNG projects moving forward should similarly not face problems related to the GHG review.

With Commissioner Danly willing to join Chairman Phillips and Commissioner Christie in issuing a certificate for Northern Natural, despite his concerns related to downstream foreseeability, LDC driven projects, including Texas Eastern Transmission, LP’s Appalachia to Market II,²⁴ Transco’s Commonwealth Energy Connector Project,²⁵ and Columbia Gas Pipeline Company, LLC’s Virginia Reliability Project,²⁶ could see orders similar to Northern Natural in the near term. As noted above, the Wahpeton Expansion Project and GTN Express Project, both LDC serving projects, may be held back by non-GHG issues.

The remaining projects before the Commission that are ripe for an order or close to ripe are Transco’s Southeast Energy Connector Project²⁷and Tennessee Gas Pipeline Company, LLC’s Cumberland Project.²⁸ Each of these projects support coal-to-gas power generation transitions such that the net-downstream emissions associated with the projects are negative. Commissioner Danly voted for orders finding downstream GHG emissions associated with power generators to be reasonably foreseeable.²⁹ Therefore, at least on the GHG emissions-related issues, each of these projects should be able to receive an order using the Commission’s recently established approach.

While the September orders indicate a re-solidification of the Driftwood Compromise and a path forward on GHG-related issues, open issues remain for certificate applicants, and those preparing applications should take notice. For example, the Commission does not have consensus on the use of full burn utilization rate to assess downstream emissions. Additionally, specific wording or content in an environmental assessment (EA) or an environmental impact statement (EIS) still seems to be able to delay action by the Commission. On these issues and all others related to GHGs, applicants must take care when preparing their certificate applications to present their projects in a manner amenable to the Commission’s current GHG consideration framework.

¹ Port Arthur LNG Phase II, LLC and PALNG Common Facilities Company, LLC, Docket No. CP20-55-000 (Trains 3 and 4); Venture Global Calcasieu Pass, LLC, Docket No. CP22-25-000; Northern Natural Gas Company, Docket No. CP22-138-000 (Northern Lights 2023 Expansion Project); Texas Eastern Transmission, LP, Docket No. CP22-15-000 (Venice Extension Project).

² Driftwood Pipeline LLC, 183 FERC ¶ 61,049 at PP 61–63 (2023) (“Driftwood”).

³ Rio Grande LNG, LLC and Rio Bravo Pipeline, LLC, 183 FERC ¶ 61,046 (2023) (order on remand); Texas LNG Brownsville LLC, 183 FERC ¶ 61,047 (2023) (order on remand); Commonwealth LNG, LLC, 183 FERC ¶ 61,173 (2023) (order on rehearing); Equitrans, L.P., 183 FERC ¶ 61,200 (2023) (“Equitrans”).

⁴ Boardwalk Storage Company, LLC, 184 FERC ¶ 61,062 (2023) (“Boardwalk”).

⁵ Transcontinental Gas Pipe Line Company, LLC, 184 FERC ¶ 61,066 (2023) (“Transco”).

⁶ Port Arthur LNG Phase II, LLC, 184 FERC ¶ 61,184 at PP 56, 58, 61, 130 (2023) (“Port Arthur LNG”); Texas Eastern Transmission, LP, 184 FERC ¶ 61,187 at PP 31, 34, 38, 71 (2023) (“Texas Eastern”); Venture Global Calcasieu Pass, LLC, 184 FERC ¶ 61,185 at PP 19, 23, 29, 36 (2023) (“Venture Global”) (collectively the “LNG related orders”).

⁷ E.g. Port Arthur LNG (Danly, Comm’r, concurring in part and dissenting in part); Texas Eastern (Danly, Comm’r, concurring in part and dissenting in part);  Venture Global Calcasieu (Danly, Comm’r, concurring in part and dissenting in part).

⁸ E.g. Port Arthur LNG at P 1 (Clements, Comm’r, dissenting in part); Texas Eastern at P 1 (Danly, Comm’r, dissenting in part);  Venture Global Calcasieu at P 1 (Comm’r Danly dissenting in part).

⁹ Northern Natural Gas Company, 184 FERC ¶ 61,186 (2023) (“Northern Natural”).

¹⁰ Id. at PP 58, 64, 90.

¹¹ Id. at P 54.

¹² Id. (Danly, Comm’r, concurring in part and dissenting in part at PP 2, 15–20).

¹³ Id. at PP 14–18 (citing 28 F.4th 277 (D.C. Cir. 2022)).  Commissioner Danly also repeated the key parts of his dissent in part from the LNG related order in Northern Natural related to the Builder Act and the appropriate standard of review.

¹⁴ Id. (Clements, Comm’r, dissenting in part at P 1).

¹⁵ See “FERC Tries to Clear Pipeline Project Backlog, but Republican Commissioner Say No,” ARBO, Aug 2, 2023.

¹⁶ Docket No. CP22-466.

¹⁷ Docket No. CP22-2.

¹⁸ See, e.g., Northern Natural; Boardwalk; Port Arthur LNG.

¹⁹ E.g., Boardwalk at P 20.

²⁰ E.g., Port Arthur LNG at P 58.

²¹ E.g., Equitrans at P 43.

²² Docket No. CP22-468.

²³ Docket No. CP22-495

²⁴ Docket No. CP22-486.

²⁵ Docket No. CP22-502.

²⁶ Docket No. CP22-502.

²⁷ Docket No. CP22-501.

²⁸ Docket No. CP22-493.

²⁹ Driftwood at P 57; Texas Gas Transmission, LLC, 181 FERC ¶ 61,049 at P 3 (2022) (Danly, Comm’r, concurring in judgment).